What Is a Purchase Order and When Do You Need One?

What is a purchase order?

A purchase order (PO) is a commercial document issued by a buyer to a seller that formally requests the supply of specific goods or services at an agreed price. Once a seller accepts a purchase order, it becomes a binding contract: the buyer commits to purchasing the described items, and the seller commits to supplying them on the stated terms. The PO number is a unique reference that both parties use on all related correspondence, delivery notes, and invoices to ensure the transaction is correctly matched and recorded.

Purchase order vs invoice: the difference

A purchase order comes from the buyer and goes to the supplier before goods are delivered. It is an offer to purchase. An invoice comes from the supplier and goes to the buyer after goods are delivered or services rendered. It is a request for payment. The two documents should match: the invoice references the PO number, and the line items, quantities, and prices on both documents should agree. When they do not match - called a 'three-way mismatch' in accounts payable - payment is typically held until the discrepancy is resolved.

What a purchase order must include

• A unique PO number for reference on all related documents
• The buyer's name, address, and contact details
• The supplier's name, address, and contact details
• The date of issue and required delivery date
• A description of each item or service: specification, quantity, and unit price
• The total value of the order
• Delivery address if different from billing address
• Payment terms (e.g. Net 30 days from invoice date)
• Any special terms or conditions relevant to the order

When do you need a purchase order?

Small one-off purchases from known suppliers are often handled without a formal PO - a verbal agreement or email trail is typically sufficient. However, a PO becomes important when: the purchase is above a certain value threshold (many businesses require POs for anything above 500-1,000); the supplier is new and no terms have been established; the order involves custom manufacturing or bespoke work that cannot easily be returned; the business operates an approval workflow that requires sign-off before spending is committed; or the goods are for resale or inventory where accurate stock records are required.

The purchase order process

The standard PO process runs: the buyer's team identifies a need and requests a quote from the supplier. The supplier provides a quote or pro-forma invoice. The buyer issues a PO referencing the agreed price and terms. The supplier confirms acceptance and delivers the goods or services. The supplier issues an invoice referencing the PO number. The buyer matches the invoice to the PO and delivery note, approves for payment, and pays within the agreed terms. This three-way matching (PO, delivery note, invoice) is the foundation of most accounts payable control frameworks.

Common mistakes

• Issuing a PO after the goods have already been delivered - a retrospective PO provides no protection. Issue it before work begins.
• Vague item descriptions - 'IT equipment' is not a description. '5 x Dell Latitude 5540 laptops, 16GB RAM, 512GB SSD, Windows 11 Pro' is. Vague descriptions cause supplier disputes about whether the delivered goods match the order.
• Not including delivery terms - specify the delivery address, required date, and who bears the cost of delivery. Omitting these creates ambiguity.
• Failing to reference the PO number on the invoice - suppliers sometimes issue invoices without a PO number, which delays payment when accounts payable cannot match the document.

Use the Purchase Order Generator

The Purchase Order Generator on this site builds a professional PO in your browser. Add your business details, supplier details, line items, and required delivery date, then download as a PDF or print. Your business details save automatically for repeat use. Nothing is stored on a server.